Should You Buy Term and Invest the Difference (BTID) or Buy VUL?

It strengthened even more when I was in the midst of watching One Tree Hill and Brooke got so broke that she begged to get accepted for a job even if it were only to pay for her car’s insurance. It was THAT important to her.

And I realized that too, when I became a mom and was able to save around Php12,000 on maternity-related expenses and around Php24,000 on my daughter’s hospitalization expenses. Considering how little I paid for my HMO (through my former employer), it was a huge bargain!

So, when an agent introduced me to life insurance, there was really no need of convincing. I knew I was going to avail it one way or the other. I wasn’t the breadwinner of the family then and I was just around three months into my new job.

But there I was, signing up for everything. Haha! I had 2 million in coverage and multiple riders in my policy.

My Biggest Mistake

While I knew what life insurance was for, I had no idea what I signed up for. Okay, maybe I did a bit.

My agent probably did a great job at explaining things to me but I was probably on information overload. I signed up for a huge coverage and multiple riders which ended up with me paying Php3,000 per month. At the start, I was probably only earning less than Php20,000 after taxes.

A few months later, I found out that I was pregnant and gave birth to our daughter…and that was when all our priorities shifted.

At Php3,000 per month, I could no longer afford to pay for my policy and although I was the one with the higher income, I also could not NOT get the partner a policy of his own.

After computing our expenses – diapers, formula, bills, and other expenses – there was nothing left.

And so I ended up having to wait for my policy to lapse. Ten months later, my Php30,000 went down the drain…

How to Choose Life Insurance

And that was the time I realized, there are multiple ways to go about shopping for life insurance.

I learned it from countless personal finance blogs and books that I’ve read over the years and I hope to share it with you guys.

Getting a VUL

Different insurance companies offer different kinds of products with various names and benefits. VUL is one of them.

According to Investopedia, VUL (or Variable Universal Life) is a permanent life insurance policy that comes with a savings component. That means that each premium you pay to the company are divided into: your insurance and your investment.

Ultimately though, this type of policy is mainly insurance so while you might get *some* return on investment from it after around 10-15 years, it’s main purpose is to provide protection in case something happens to you. The investment part is just an added benefit but not its main component.

Thus, you also have to keep in mind that in most policies, the first 3-5 years of premium-paying is mostly allocated to the insurance component. After that, most of the premium already goes to the investment component.

I could be fuzzy on the details so make sure to discuss this thoroughly with your insurance agent or financial advisor.

Some of the things I learned along the way is that a VUL policy is best for:

those who don’t want to see their insurance premiums go down the drain (they actually go the same way, only the VUL has a savings component tied to it so you are able to get some chunk of money still)

those who cannot discipline themselves to set aside money for investments

those who cannot be bothered to find out where to invest

those who just want to set it and forget it

Advantages of a VUL policy:

Both insurance and investments get taken care of

There’s money you can withdraw because of the savings component

Your policy can pay for itself if you have enough funds in your account (especially helpful if you miss payments)

The monthly premiums stay the same

Disadvantages of a VUL policy:

You get bigger returns when you invest directly in mutual funds or the stock market

Buy Term, Invest the Difference

Fortunately, about a year after losing my first VUL, we were able to find another agent who *nearly* helped us get what we wanted, which was a term life insurance policy.

For some reason, we failed in the medical exams, so we ended up with a VUL with zero riders (we know better now; but also we WILL get them added once we have additional funds eventually). Thus, what we paid for in one month for my previous policy was equal to a quarter’s worth of premiums in this new policy.

We were now able to get two policies and also still have a bit more left to invest directly to mutual funds or in the stock market.

Update: My second policy lapsed (again lol) when we transitioned to a one-income freelancing household but I’ve already signed a term life insurance policy via Sun Life’s Sun Safer Life and have paid for it for one year. Yay! Also, my annual premiums for the first five years is only at Php7,850. Double yay!

This means, compared to my first VUL, I’d have saved Php28,150 which I could invest into mutual funds or stock market for retirement or for the kids’ education.

Some of the things I learned along the way is that the BTID approach is best for:

those who already have discipline to set aside money for insurance AND investments

those who want full control of their investments

those who want to periodically reallocate and balance their investment portfolio

Advantages of the BTID approach:

You have lower monthly premiums on your insurance policy

You have a higher earning potential on your investments

You have full control over where your money is invested (or partially, if you go for mutual funds)

Disadvantages of the BTID approach:

Insurance premiums get recalculated every five years – and thus go higher the older you get

You get nothing out of your insurance policy

Your policy could lapse if you miss a payment

You can totally do a BTID approach with Sun Life: check out their income protection plans here and their mutual funds here.

Which one’s for you?

Ultimately, the decision is all up to you.

Whichever approach you decide to go for, always keep in mind that insurance is for your peace of mind and investments is for growing your money.

If you are unsure which path to take, discuss it with your insurance agent or financial advisor – and make sure to talk with a trusted one who aren’t just after the commissions! 😉